Read the PROBLEM SOLVING Case “Motivating Employees at Nucor Corporation”
Today Nucor Corporation is the largest producer of steel in the United States, so it is hard to believe it was once an underdog in a struggling industry. What has set the company apart is a focus on moti- vating and empowering employees. The employee focus is illustrated by the custom of printing each individual’s name on the cover of Nucor’s annual report. But the concern for employees is much more practical and goes far beyond symbols. Nucor’s pay system is remarkable. At all levels of the company, the largest share of employees’ income is tied to their performance. Base pay for a Nucor steelworker is near $10 per hour, far below the industry range of $16 to $21. But on top of that, steelworkers can earn a bonus based on the amount of defect-free steel produced during their shift. Those bonuses can triple the workers’ pay, taking it far above the industry average. Tying the bonus to the entire shift’s performance also motivates employees to cooperate to get the job done. In addition, the company pays out profit sharing, encouraging employees to care about the entire company’s performance. The company computes the bonus on every order of steel and pays it weekly, so employees have plenty of reinforcement. In 2005, a typical Nucor steelworker earned $79,000 plus $2,000 from a special bonus celebrating record earnings for the company plus nearly $18,000 in profit sharing. Managers receive sim- ilarly large amounts of their pay in the form of bonuses and profit sharing. For employees new to Nucor, often used to relying on base pay, the compensation arrangement seems alarming at first. Once they get a taste of bonuses, however, they become highly moti- vated. When Nucor acquired a steel plant in Auburn, New York, workers wanted to keep their old pay system, so management simply continued paying them the old way but announcing what they would have made under Nucor’s system. Eventually employees began to see that a new way of thinking could fill up their pocket books. David Hutchins, a Nucor supervisor in Auburn, says that before Nucor acquired his plant, workers in his group tended to relax when- ever an earlier stage of operations slowed down. But with a bonus riding on their shift’s output, the employees no longer think of themselves as separate groups: “Wherever the bottleneck is,” explains Hutchins, “we go there, and everyone works on it.” Before long, output in Auburn was up, and so were paycheck totals. Motivation at Nucor is about more than pay, however. The company encourages employees to share ideas and empowers them to make decisions and solve problems. Supervisors, for example, make decisions more typical of a plant manager. Once, following the failure of an electri- cal grid at the Hickman, Arkansas, plant, a group of electricians at Nucor facilities in Decatur, Alabama, and Hertford County, North Carolina, traveled to Hickman to work on the problem. They did not need to get a supervisor’s approval; they just needed to do what they determined was most important. Along with cooperation, Nucor fosters friendly competition in order to stimulate creative think- ing. For example, plants often hold contests among the shifts to see which one can meet a goal related to output, safety, or efficiency.
Questions -
How does performance-based pay motivate Nucor employees? Would this pay system be effective if Nucor did not also empower employees to make decisions? Why or why not?
Supervisors do not set up the pay system for a large company like Nucor. How can Nucor’s supervisors contribute to employee motivation?
Does the description of Nucor sound like an organization in which you would feel motivated? Why or why not? Which theory of motivation would best explain your feelings?